"Now, even a bank slams workfare. TD report pokes holes in welfare and EI policies, offers new blueprint for safety net ...an earned income supplement for the working poor... and a refundable tax credit for the very poor... a variation on the old
guaranteed annual income scheme."
Thomas Walkom, Toronto Star, Sept. 9, 05.
Bank economists advocate guaranteed income: A analysis of the TD Special Report "From Welfare to Work In Ontario: Still the Road Less Travelled" Sept. 8, 2005
by Larochelle & L'Hirondelle, Oct. 05
Livable Income For Everyone
Many were surprised by a recent report by of one of Canada's biggest private banks--TD Canada Trust-- for recommending a form of guaranteed income: "Providing a new credit at the federal level would open up an opportunity to collapse existing federal and provincial refundable credits in to a single program in a way that better serves the needs of all low-income Canadians." (pg 27)
TD Economists Don Drummond and Gillian Manning admit that something "has gone awry" with welfare strategies (ii) and federal supplements are needed to "address cases of labour market failure, where wages are too low or hours of work insufficient to generate an adequate income" (pg 26) because "being employed is not a guarantee that people will not fall into low income... in 2001, 653,000 Canadians were in low income despite having a high work effort throughout the year." (pg 6)
These statements are no surprise to all the people trying to survive on low-paying jobs-- especially for women who end up with the double burden of doing both low paid and unpaid work. Yet for Canada's top economists to intimate that jobs and more productivity are not the solution to poverty is a great aid in being able to confront all the poverty 'helpers', theorists and politicians who want to 'fix' and 'train' poor people so they can find jobs with a "hand up" instead of a "hand out".
Yes something is afoot when even mainstream newspapers state that the notion of employment earnings being able to furnish adequate income "has changed" and "as Canada has changed, so must its social safety net." (Globe & Mail, editorial referring to the TD Report, Sept 12, 05, A12)
The report also raises concerns about the "severe financial crunch" on municipalities like Toronto with the next economic downtown and stresses the critical importance of not having a perpetual "economic underclass" (pg. 8) that become "hard to serve" (pg. 4) and the importance of changing welfare asset rules to allow people to save money to "guard against a temporary disruption in their earnings." (pg. 32) In addition, they point out that increasing numbers of self-employed and new immigrants do not qualify for unemployment insurance (v).
But it is important to note that the authors continually frame their rationale for advocating federal supplements by saying it will promote workforce attachment: "Working has been shown to be one of the surest routes out of poverty for low income adults, and what is good for individuals is also good for society as a whole" and believe in the fundamental soundness of Ontario's welfare principle "that people who can work should work." (ii)
Much of the 48 page report describes how welfare has a high marginal effective tax rate -- when people earn income most is deducted and they lose cash and non-cash benefits when they leave welfare altogether and end up poorer. The usual response to this is to recommend that welfare should be cut even more.
However, the authors take note of the grim reality that -- in spite of the fact that welfare has "fallen substantially in nominal and real terms" which should create "an increasingly powerful incentive" (ii) for recipients to find work -- there are still large numbers of people on welfare.
The recommendation of a working income supplement (for low earners) and a refundable tax credit for all low-income Canadians would "help take some of the pressure off welfare to shore up the financial security of low-income adults" and "would have the virtue of doing so through anonymous, rules based programs that are free of stigma and intrusive administrative oversight that go along with discretionary programs like welfare." (v)
But since when did big banks go soft on the poor? Why are they not just advocating tax cuts as usual? It is likely that the real answer to the sudden interest in somehow getting money to common people has to do with the fact that the business sector can't produce jobs without consumption. Adam Smith stated this in 1776 when he wrote "consumption is the sole end and purpose of production." (Wealth of Nations, Chapter VIII).
And in 1946 Henry Hazlitt pointed out "the economic goal of any nation as of any individual, is to get the greatest results with the least effort...It is for this reason that men use their ingenuity to develop 100,000 labour saving inventions. ...The progress of civilization has meant the reduction of its employment not its increase."(Economics in One Lesson, Chapter 10).
However, although it is a business imperative to try to automate everything, machines can't consume the products that are made leading to gluts of almost everything. A quick review of the glut situation doing an internet search shows numerous major surpluses: electronic gadgets, bicycles, textiles, cars, and all kinds of agricultural products.
In "Produce and Perish" Devinder Sharma writes "With a fortnight of President Kalam's exhortation to [be more productive], farmers in Kurnool district in Andhra Pradesh, dumped cartloads of tomato on the streets. Excess production had resulted in a crash in tomato prices... irate potato growers have demonstrated their anger by throwing potatoes onto the highways. Not only crop failures, even bumper harvests have begun to push farmers into a vicious cycle of mounting debt and distress... farmers are increasingly becoming a victim of the new emerging phenomenon of "produce and perish". (indiatogether.org, Jan. 2003)
The advance of digital products will only make it more obvious that our capacity to produce has outstripped our ability to consume. In The Globalization of Poverty (2003), Michel Chossudovsky writes: "the global oversupply of commodities is a direct consequence of the decline in purchasing power and rising levels of poverty."
Without consumption, jobs don't exist so it is not surprising that at least some economists are hinting at this fact. After all, if they thought they could get away with it, corporate and political leaders would have just ended the welfare state long ago. It is also the reason why they are not demanding tax cuts. Afterall, you can't give people tax cuts when they are too poor to pay taxes and if too much production is a problem you don't want money going to people or businesses who might just save their money or end up investing money into more production.
To frame a federal income supplement proposal in terms of helping people work is more politically palatable then just saying we need to give people money or we are going to face a severe economic, social and health crisis.
The federal supplements are certainly not a Guaranteed Livable Income but it is a big change when opinion leaders are no longer pushing ridiculous and sadistic mantra of "a job is the best social safety net" (BC Minister of Human Resources Murray Coell, Hansard Volume 5, Number 6, April 2002) and the fantastical "...Canada must start creating good, secure, quality jobs with family-supporting wages". (Ken Georgetti, Canadian Labour Congress, press release, Oct. 7, 2005)
So the report is a step in the right direction insofar as it is admitting (obliquely and otherwise):
a) cutting slashing welfare benefits has been a costly failure
b) Jobs and more production are not the solution to poverty;
that it is far cheaper just to send people money than to try to create make-work jobs.
What economists can't admit is that they have failed big time: "the nostrums of neo-classical economics enshrined in national and international policy making have begun to look a little tattered" (Carol Pateman, Democratizing Citizenship:Some Advantages of a Basic Income, Politics & Society, Vol. 32 No. 1, March 2004)
An interesting parallel occurrence is that Alberta recently handed out $400 "prosperity bonus" to all their residents and the federal government just announced creating some kind of scheme to give out one-third of any federal surplus to all Canadians, initially as a cheque and in subsequent years as a tax rebate.
But ultimately any small federal supplements must be replaced by a Guaranteed Livable Income in order to do away with the suicidal economic prescription of "produce and perish."
One of the authors of the report, Don Drummond, spent 23 years working for the federal government's Ministry of Finance before becoming TD Bank's Chief Economist in 2000
Drummond was an advisor to the Minister of Finance, Paul Martin, who is now the Prime Minister of Canada, during the years when social programs were cut. Paul Martin is in the Liberal Party, which historically has had some members advocating for guaranteed income. The former Prime Minister Jean Chretien (also in the federal Liberal Party) proposed a Guanateed Annual Income in Dec. 2000. This plan was immediately slammed by the political party on the right (then called the Canadian Alliance) who called it "stealth socialism" and it quickly faded from public view.
Special Report co-author, Gillian Manning, is also an economist with TD Economics. Both she and Drummond worked on this report as part of a 50 member Income Security Task Force which includes prominent economists, business and civic leaders and Ken Georgetti, head of the Canadian Labour Congress. The main sponsor of the Task Force is the Atkinson Charitable Foundation.